lecture06 2013.09.22 postclass

7/27/2019 Lecture06 2013.09.22 PostClass

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Lecture 6

Accounting Cycle


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Goals of Todays Class

Discuss the accounting cycle

Adjusting Entries

Closing Entries

Unadjusted Trial Balances

Simpsons Corp Comprehensive Example


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Pop QuizHow do these accounts get generated and in

which financial statement do they appear? Unearned rent revenue

Prepaid insurance expense

Interest Receivable

Wages Payable

Accounts Payable

Accounts Receivable

Depreciation Expense

Accumulated Depreciation 3


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Accounting Cycle


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The Accounting Cycle

What is Accounting Cycle?

The sequence of accounting proceduresused each period to record transactionsand events and to prepare financialstatements.


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Transaction

occurs ANDdocument is

generated

Journal entry

is entered intothe Journal -Journalizing

Transfer (Post)

entries fromthe Journal to

T-Accounts

PrepareUnadjusted

TrialBalance

MakeAdjusting

Entries to TrialBalance

PrepareAdjusted

TrialBalance

ClosingProcess

Prepare otherFinancial

Statements

These

happenevery day atthe time of

thetransaction

Thesehappen at

the end ofeach period

The Accounting Cycle

PrepareIncome

Statement


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ABC Merchandise Co.Accounting Cycle

1. Make journal entries

a) Issue 200 shares of $1 par value stockfor $500

Cash 500

Common stock 200Additional paid-in capital 300

Debit Credit


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b) Purchase property plant and equipment for$200

Property, plant and equipment 200

Cash 200

Debit Credit


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d) Purchase $200 of inventory on account

Inventory 200

Accounts payable 200

e) Pay $160 to supplier on account

Accounts Payable 160Cash 160


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f) Sell merchandise costing $80 for $130,cash

Cash 130

Sales Revenue 130

Cost of goods sold 80

Inventory 80


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g) Sell merchandise costing $45 for $80, on

account

Accounts Receivable 80

Sales Revenue 80


Inventory 45


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h) Collect $35 from customer as payment

on account

Cash 35

Accounts Receivable 35


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2. Post journal entries to ledger


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3. Prepare unadjusted trial balance

Debit CreditCash 305Accounts Receivable 45Inventory 75PPE 200

Accumulated depreciation 0Accounts Payable 40Common Stock 200APIC 300Retained Earnings 0

Sales Revenue 210Cost of goods sold 125Depreciation 0

750 750


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4. Make adjusting entries in the journal

c) Depreciation of PP&E by $10

Depreciation expense (+E) 10

Accumulated depreciation (-A) 10


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5. Post adjusting entries to the ledger


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6. Prepare adjusted trial balance

Unadj. TB Adjustments Adj. TBDebit Credit Debit Credit Debit Credit

Cash 305 305Accounts Receivable 45 45Inventory 75 75PPE 200 200

Accumulated depreciation 0 10 10Accounts Payable 40 40Common Stock 200 200APIC 300 300Retained Earnings 0 0Sales Revenue 210 210

Cost of goods sold 125 125Depreciation 0 10 10

750 750 10 10 760 760


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7. Prepare Income Statement

ABC Merchandise Co.

Income Statement

For the year ended December 31, Year 1

Sales Revenue $210


Depreciation expense 10

Net Income $ 75

Company name

Name of the financialstatement

Date


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At the end of the period, income accounts are closed back

into the retained earnings. All revenues and gains must eventually be included as

increases in RE and all expenses and losses musteventually be included as decreases in RE

Recap: Permanent vs. Temporary Accounts


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8. Close the temporary accounts

First, make the closing entries in the journal.

C1) Close revenue accounts to Retained EarningsSales Revenue 210

Retained Earnings 210

C2) Close expense accounts to Retained EarningsRetained Earnings 135

Cost of goods sold 125Depreciation expense 10


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Then, post the closing entries to ledger.

Retained Earnings

Sales Revenue Cost of Goods SoldDepreciation Expense

c) 10130 (f f) 80

80 (g g) 45

10125210

0

C1) 210

210 (C1

0

125 (C2

C2) 125

C2) 10

0

10 (C2

75

75

0


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9. Prepare Statement of Retained Earnings

ABC Merchandise Co.

Statement of Retained Earnings

As of December 31, Year 1

Retained Earnings, January 1, Year 1 $ 0

Net Income 75

Dividends 0

Retained Earnings, December 31, Year 1 $75

Company name

Name of the financial

statement

Date


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10. Prepare Balance Sheet

ABC Merchandise Co.Balance Sheet

As of December 31, Year 1Assets

Cash $305Accounts Receivable 45

Inventory 75Property, plant and equipment 200Accumulated depreciation (10)

Total Assets $615Liabilities

Accounts Payable $ 40Shareholders Equity

Common Stock 200Additional Paid in Capital 300Retained Earnings 75

Total Liabilities and Shareholders Equity $ 615

Company name

Name of the financialstatement

Date


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Closing remarks.

Assimilate lecture slides 1 through 6.

Next Class:

Statement of Cash Flow

Simpson Corp (!!)

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lecture06 2013.09.22 postclass

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